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Saturday, September 18, 2010

Cold Water over Virgin Blue Aspirations

Virgin Blue received a major blow with the Australian Competition and Consumer Commission (ACCC) giving a tentative decision against the airline’s cooperation strategy with Delta and Air New Zealand. This is a major setback to Virgin Blue’s plans of putting up a serious challenge to its much bigger rival, Qantas. As per the ACCC, the alliance can kill competition in the trans-Tasman market of air passenger service. ACCC further pointed out that Virgin Blue is a major competitor to Air New Zealand and the alliance will jeopardise competition on numerous trans-Tasman routes. ACCC also justified its stand by clarifying that more than a million passengers will face an adverse impact if competition between Virgin Blue and Air New Zealand comes to an end. In other words, there would be a shortage of cheap flights. However, these observations have not been well received by many industry experts.

Insiders point out that some years back, Australian authorities granted approval to cooperation proposal between Air New Zealand and Qantas. This proposal had a much more far reaching impact and could not go through only because New Zealand Commerce Commission rejected it on the grounds of adversely impacting competition in New Zealand’s domestic sector. Both airlines had captured about 80% of the market at that point of time. This has naturally caused many to raise the question as to why this alliance was given the nod from Australia, while the current one has been shelved.

In fact, industry experts have gone on to point out many other flaws with the ACCC decision. These are: